The tremendous success of the OpenSea platform created many lookalikes with dubious goals and exorbitantly high risk of thefts and disappearances. The industry itself is very dynamic and highly acclaimed, so we shouldn’t be throwing the baby out with the bathwater. However, due caution is highly advisable.

Recent data from market tracker DappRadar showed that in the third quarter of 2021, total NFT sales volume skyrocketed to $25 billion. Why people have become so much and so easily addicted to NFTs? NFT helps us feel special and unique while staying online. It also offers a roadmap to our digital capital appreciation. As a result, surging sales and hefty prices on NFTs have baffled many but their multi-fold growth shows little or no depreciation whatsoever.

Presently, OpenSea has been reigning in the NFT selling space. Reports have predicted OpenSea sales from last year to amount to around $10 billion. However, amid the rising numbers of NFTs entering the market every day, a new online marketplace for these digital assets has been introduced without any recallable preliminary marketing campaign, named “LooksRare”. A report by CoinTelegraph said that ”Within just three days, the NFT marketplace has recorded a sales volume of $394 million”. The platform was officially launched on January 10.

LooksRare positioned itself as a new (or even, perhaps, the only viable) OpenSea competitor offering trading rewards to incentivize users. From the very start of it, LooksRare looked very much preoccupied with setting off itself against the OpenSea. It started to compete with the rates and boasted it “may explain every sale”. The LooksRare marketplace has indexed all NFT collections on the Ethereum blockchain.

Their website interestingly points out that “… one can trade all the Ethereum NFTs that are available on OpenSea… and even some that aren’t”. The platform is rewarding NFT buyers and sellers from eligible collections, with its native token called LOOKS. “LooksRare is the community-first NFT marketplace that actively rewards traders, collectors and creators just for their mere participation. “Why do we need another marketplace? Because the NFT community deserves better,” the platform wrote on its website.

The top NFTs that stirred interest among buyers on LooksRare are the Meebits collection, created by Larva Labs. Larva Labs Inc.— the same creators behind Cryptopunks and Autoglyphs, which was founded in 2005 in New York.

Meebits is a collection of 20,000 unique 3D voxel characters on the Ethereum blockchain. These characters are created using a custom generative algorithm. Ownership is managed through the standard ERC-721 protocols. The main feature of Meebits is that the total number of Meebits in circulation is limited to 20,000 characters. By virtue of their self-proclaimed statute, no more Meebits can be created.

Kicking off its operations, LooksRare offered to levy just 2% fees on basic sales and no fees on private sales of NFT pieces. OpenSea, on the other hand, charges a 2.5% fee on every transaction.

A Meebit NFT happened to be sold for eight figures number, but the trade looks very suspicious.

The sale took place on LooksRare, on January 12 this year and exploded like a bomb. The buyer paid 14,700 Ethereum for Meebit #13824, the equivalent of around $49.5 million at today’s prices. The transaction can still be found on Etherscan archived records.

Fig. 1. Meebit #13824

The $49.5 million price tag makes the token one of the most valuable NFTs ever sold, behind Beeple’s “Everydays: The First 5,000 Days” and Pak’s “The Merge,” which respectively fetched $69.3 million and $91.8 million last year. However, several signs suggest that the trade may not be legitimate.

The buyer’s wallet reportedly contained 18 other Meebits and three CryptoPunks, which could be hinting that the buyer was a big fan of the stuff or of Larva Labs NFTs style as a whole. However, while the rarest CryptoPunks frequently trade for millions of dollars, Meebits are typically much less sought after. On both LooksRare and OpenSea, the cheapest Meebits are trading for roughly 4 Ethereum. One can admit, that unlike overwhelming majority of top selling NFTs across the spectrum that have something truly unique, starting with an idea and ending by its implementation, Meebit #13824 looked blatantly dull and even less appealing than other NFTs in the collection, which visually makes it less valuable. Prior to today’s sale, the highest offer it had received on LooksRare was 3.95 Ethereum.

Last weeks’ Meebits stats have been showing, again and again, nothing surprising or at least remotely resembling what happened on January 12. The most recent numbers, according to nft-stats.com, are as follows:

  • Meebits NFTs were sold 108 times in the last 7 days.
  • The total sales volume for Meebits was $1.79M.
  • The average price of one Meebits NFT was $16.6k.
  • There are 5 734 Meebits owners, owning a total supply of 20,000 tokens.

LooksRare Rewards Incentivize Wash Trading

LooksRare’s token reward distribution may explain the sale. To incentivize users, the marketplace is paying out 2,866,500 LOOKS tokens to traders daily for its first 30 days. The LOOKS token is currently trading at $4.12, which equates to $11.8 million in daily rewards. The rewards are distributed pro rata according to each user’s trading volume, which means generating more volume can earn a greater portion of the $11.8 million.

However, again, that is not enough to explain the underlying reason for such an extraordinary transaction. In other words, many factors point to a sham or a wash trading. Let’s remind, that wash trading involves buying and selling products to create artificial activity to manipulate markets and prices.

Fig. 2. History of LOOKS Token Price: Too Volatile for a Real Emerging Network Token

Source: Messari.io

LooksRare is set to continue paying trading rewards in four phases that will gradually reduce distribution over the next year. While the marketplace is yet to comment on the wash trading issue, for now it seems a little early to rank the Meebit #13824 sale alongside Beeple and Pak just yet. In this instance, the original owner of Meebit #13824 may have sold the NFT back to themselves through another wallet to secure a greater share of the rewards pool. Crypto Briefing analyzed the transaction history on the seller’s wallet but did not find any prior connection to the buyer.

Conclusion

As the Twitter user dingaling suggested in a last week’s tweet storm, some LooksRare users could have engaged in wash trading to receive a greater share of the rewards. It’s worth remembering that such practices are illegal in traditional markets, and this, in a case of an impending litigation, is something that may urge certain major financial regulators to conduct scrutiny of this market as a whole.